Payment Reform Seen in Medicaid's Future

Focus needs to be on paying for value, say state officials and scholars

WASHINGTON -- The future of Medicaid will revolve around changing the way care it is paid for, several experts said here Wednesday.

"It's all about a holistic approach to the healthcare system -- breaking down the silos between physical health, mental health, environmental health, and social determinants of health," Matt Salo, executive director of the National Association of Medicaid Directors, said at an event on the future of Medicaid sponsored by the Modern Medicaid Alliance and the Hoover Institution, a right-leaning think tank. "But if we want things to change for the better, we have to figure out how to change the financial incentives so ... we're paying for value, paying for success."

Critics who suggest that Medicaid isn't on a tight enough budget don't really understand what Medicaid directors go through, he continued. "The motivation is to improve the health system, improve outcomes, and improve the experience of the people we serve while being good stewards of the taxpayer dollar; there isn't a day goes by where [Medicaid directors] aren't trying to figure out how to do more with less."

But Congress can definitely make some changes that will improve the system, such as removing the Institutes for Mental Diseases (IMD) exclusion which limits the size of the inpatient mental health facilities that can be reimbursed by Medicaid, Salo added. "There's an opportunity for Congress to act. The real excitement is going to be about how well we can work with the administration to really unleash the power of the states in their efforts to do delivery system and payment reforms. That's what it's really going to take to fix the healthcare system."

The administration also will be playing a large role, said Dennis Smith, senior advisor to Arkansas Medicaid & Healthcare Reform. Health and Human Services Secretary Alex Azar and Seema Verma, administrator of the Centers for Medicare & Medicaid Services, "are going to be the most dynamic team put together and they are going to drive real change and make the strongest use of the authority of the secretary, which is quite broad and wide," he said. "Clearly the center of gravity has shifted to the executive branch."

The recent discussions about adding work requirements to some Medicaid programs "have sucked a lot of discussion into an issue that shouldn't be the issue," said Sara Rosenbaum, professor of health law and policy at George Washington University here. "The future lies in giving states the tools they need to grow integrated delivery systems and integrate those systems with social services."

Some of those tools won't be comfortable to use -- like changing the way states pay for drug benefits -- "But that's where we should be focusing ... not on arbitrary cuts to the program," she added.

Smith said he favored relaxing requirements for waivers. "States and the federal government are in a constant tug of war," he said. "Why has the federal government assumed responsibilities that have very little purpose directly related to the Medicaid program? Maybe it's time to step back from that."

He added that waivers now account for 40% to 50% of Medicaid spending. "Arizona has run its program since 1992 with a waiver," said Smith. "Isn't it time to let Arizona run the program the way it sees fit and not have to come back to the federal government [for a waiver] every 5 years?"

But Rosenbaum said now was not the time for a big discussion about overhauling the way Medicaid is run, recalling the debates last year over whether to block grant the Medicaid program. "It was so searing; it turned into a fundamental revisiting of what the role of the federal government was all about in healthcare," she said. "I'd be surprised if we saw any appetite for revisiting Medicaid's future in the way we talked about it last year.

"The battle against the program was encapsulated in a lot of unfortunate rhetoric about the program that turned out not to be true ... I think people were left with a bad taste for the way the Medicaid debate happened; I think it was just the wrong discussion to have last year."

Some states are already making changes. Smith described a Medicaid program started in Arkansas a year ago called Providers of Arkansas Shared Savings Entity (PASSE), in which the providers themselves have to be at least 51% owners of a joint medical enterprise, along with an experienced healthcare organization; the enterprise takes on some risk but also shares in any savings generated.

The PASSE program focuses on people with severe mental health and intellectual and developmental disabilities. The state has narrowed the focus to about 30,000 such patients who account for about $1 billion in Medicaid spending -- "these are the toughest people [for whom] to organize their care," said Smith.

So far, the state has attributed 4,000 people to PASSE. "This is the way to get out of the Medicaid black box; we are truly going to integrate all these services together and be at risk for physical health needs as well. It has to be better for the patient, cost-effective for the taxpayer, and it has to be a viable business model," he said.

Another focus for state Medicaid programs is going to be the opioid crisis, said Hemi Tewarson, director of the health division at the National Governors Association's Centers for Best Practices. Rhode Island is one of the states trying a "peer recovery" model in which opioid-addicted patients who present to the emergency department are connected to a peer counselor who is also in recovery, and who can advise the patient and get them connected to needed services.

"We've seen a change in behavior and real outcomes for individuals -- [the question is] how do you cover peer recovery in Medicaid?" she said. Alternatives to inpatient care and other forms of pain management also need to be in the mix, Tewarson said.

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